Finally, the answer to all that couldn’t be done with a standard FHA loan…
FHA 203(k) is back! It’s FHA’s version of a construction/rehabilitation loan for properties that typically wouldn’t qualify for a standard FHA loan. FHA has probably the lowest downpayment option around (3.5% vs. 5%+ with conventional loans). This is causing FHA to become a MUCH more popular avenue than in recent years past.
The 203(k) loan will now allow you to purchase a property through FHA that is in need of repair. Prior to 203(k), FHA had tight restrictions on property conditions, basically preventing most Foreclosure properties from qualifying. For instance, if the property didn’t have a stove/range, it wasn’t qualifying. If the repairs were more than minimal, it wasn’t going to pass an FHA appraisal. It had to basically be a move-in-ready, liveable property or FHA wouldn’t approve the loan.
So, FHA 203(k) has cleared that hurdle and those properties are ready for Buyers.
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For more on the FHA 203(k) loan program, please click here. Below are a few exerpts from the article:
203(k) – How It Is Different
Most mortgage financing plans provide only permanent financing. That is, the lender will not usually close the loan and release the mortgage proceeds unless the condition and value of the property provide adequate loan security. When rehabilitation is involved, this means that a lender typically requires the improvements to be finished before a long-term mortgage is made.
When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point the lender has a fully-insured mortgage loan.
Maximum Mortgage Amount
The mortgage amount, when added to any other existing indebtedness against the property, cannot exceed the applicable loan-to-value ratio and maximum dollar amount limitations prescribed for similar properties under Section 203(b). The Mortgage Payment Reserve is considered a part of the cost of rehabilitation for determining the maximum mortgage amount.
A. Maximum Mortgage Calculation. The value is defined as the lesser of:
1) The as-is value of the property before rehabilitation plus the cost of rehabilitation; or
2) 110 percent of the expected market value of the property upon completion of the work.
Principal Residence (Owner-Occupant) & HUD Approved Non-Profit Organization. For purchases with 203(k) financing: the maximum mortgage amount is to be based upon the HUD estimate of value in 1) or 2) above, less the statutory investment requirement. For refinances under the 203(k) program: the maximum mortgage amount is to be based upon 97/95/90 percent of the HUD estimate of value in 1) or 2) above.
B. Cost of Rehabilitation. Expenses eligible to be included in the cost of rehabilitation are materials, labor, contingency reserve, overhead and construction profit, up to six (6) months of mortgage payments, plus expenses related to the rehabilitation such as permits, fees, inspection fees by a qualified home inspector, licenses and consultant and/or architectural/engineering fees. The cost of rehabilitation may also include the supplemental origination fee which the mortgagor is permitted to pay when the mortgage involves insurance of advances, and the discounts which the mortgagor will pay on that portion of the mortgage proceeds allocated to the rehabilitation.
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In summary, it’s awesome.
As always, if we can ever do anything for you, please don’t hesitate to contact us.
Hope this info was helpful!
Aaron & Kelly Allen
Real Estate Consultants
Keller Williams Realty Premier Atlanta
3365 Piedmont Rd, Suite 1050
Atlanta, GA 30305
Aaron 404-863-8680 | Kelly 404-606-2219 | Fax 866-298-8584
Aaron@KellySellsAtlanta.com | Kelly@KellySellsAtlanta.com
www.KellySellsAtlanta.com
www.KellySellsAtlanta.com/blog
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If you happen to know of someone that’s thinking of Buying or Selling, we’re here to help. Just email or call us w/ their contact info and we’d be honored to take absolute care of them.
tance in the current market. However, if a home is priced correctly when originally listed, 2008 statistics show that the home will sell in 31 days for 96.5% of the original list price. 
